This is not a commodity, a meme stock, or even a cryptocurrency. This is the S&P 500 futures. When in doubt, zoom out. Look at where we are:
I've added (orange line) M2 money supply for comparison. After years of trying since the 2008 financial crisis, the Federal Reserve has finally been able to goose inflation, and now they've lost control. Inflation stats are coming in searing hot, highest in 4 decades. Global supply lines have been snarled first by a trade dispute with China, then by a global pandemic, and now by war and sanctions. Meanwhile the pandemic has become an endemic. The Federal Reserve has begun raising rates and steering the ship from QE toward QT. As basic living costs like rent, food, and fuel continue to rise, more and more Americans will be forced to curtail discretionary spending. Stagflation is the next logical phase.
We are entering a new economic cycle. Many are about to realize that the so called Fed put never really existed. This equity bull market that we've seen has been a byproduct of Fed intervention, not an objective of it. Globalism is fracturing and the artificially low prices that it brought to us will go with it. As the fed reverses the money spigot and raises rates to combat runaway inflation, the sky high equity valuations will no longer be sustainable. The buy the dip paradigm has ended. Investors and traders will need to be much more alert and agile than they have been in past years. Passive portfolios will take a hit, and the active portfolio manager, those at least who can find their bearings in this market, will come back into vogue.
There are those who think that the Fed can engineer a soft landing. There are also those who think that the Fed will not raise rates very far before reversing course and firing up QE again. I think both cases are wishful thinking and I would tell them that hope is a very poor investment thesis. The Fed has spent years trying to achieve 2% inflation, using all manner of monetary plumbing machinations to stave off deflation. In 2020 they fired a bazooka, and they did it in world full of inflationary fuel. The difference was that the deflationary force of globalization was breaking down, and supply lines were jammed up by pandemic lockdowns. Now there are forces driving inflation that the Fed can't control, beyond interest rates and money supply. This means that to curtail inflation, they're going to have to overcompensate with the one lever that they can pull. Rates are going a LOT higher.
What does this mean for the economy? Corporate debt becomes toxic. Equities fall, especially the NASDAQ. Mortgage rates rise as do barriers to lending. This eventually leads to a housing bear market. Essentially the cost of living rises while the value of investments falls. There are other interesting developments to consider such as cryptocurrencies and CBDCs. It is entirely possible that if the Fed cannot correct Dollar inflation, they may eventually just replace the Dollar.
These are just a few of my musings and predictions as I sit here studying these long term charts. Now it's time to prepare for the week ahead. Stay safe out there traders. Trade well!
I've added (orange line) M2 money supply for comparison. After years of trying since the 2008 financial crisis, the Federal Reserve has finally been able to goose inflation, and now they've lost control. Inflation stats are coming in searing hot, highest in 4 decades. Global supply lines have been snarled first by a trade dispute with China, then by a global pandemic, and now by war and sanctions. Meanwhile the pandemic has become an endemic. The Federal Reserve has begun raising rates and steering the ship from QE toward QT. As basic living costs like rent, food, and fuel continue to rise, more and more Americans will be forced to curtail discretionary spending. Stagflation is the next logical phase.
We are entering a new economic cycle. Many are about to realize that the so called Fed put never really existed. This equity bull market that we've seen has been a byproduct of Fed intervention, not an objective of it. Globalism is fracturing and the artificially low prices that it brought to us will go with it. As the fed reverses the money spigot and raises rates to combat runaway inflation, the sky high equity valuations will no longer be sustainable. The buy the dip paradigm has ended. Investors and traders will need to be much more alert and agile than they have been in past years. Passive portfolios will take a hit, and the active portfolio manager, those at least who can find their bearings in this market, will come back into vogue.
There are those who think that the Fed can engineer a soft landing. There are also those who think that the Fed will not raise rates very far before reversing course and firing up QE again. I think both cases are wishful thinking and I would tell them that hope is a very poor investment thesis. The Fed has spent years trying to achieve 2% inflation, using all manner of monetary plumbing machinations to stave off deflation. In 2020 they fired a bazooka, and they did it in world full of inflationary fuel. The difference was that the deflationary force of globalization was breaking down, and supply lines were jammed up by pandemic lockdowns. Now there are forces driving inflation that the Fed can't control, beyond interest rates and money supply. This means that to curtail inflation, they're going to have to overcompensate with the one lever that they can pull. Rates are going a LOT higher.
What does this mean for the economy? Corporate debt becomes toxic. Equities fall, especially the NASDAQ. Mortgage rates rise as do barriers to lending. This eventually leads to a housing bear market. Essentially the cost of living rises while the value of investments falls. There are other interesting developments to consider such as cryptocurrencies and CBDCs. It is entirely possible that if the Fed cannot correct Dollar inflation, they may eventually just replace the Dollar.
These are just a few of my musings and predictions as I sit here studying these long term charts. Now it's time to prepare for the week ahead. Stay safe out there traders. Trade well!